Rio Tinto is boasting the world’s largest lithium resource base and major growth options after striking a counter-cyclical $US6.7 billion ($A9.9 billion) deal to buy Arcadium Lithium.
Rio Tinto is boasting the world’s largest lithium resource base and major growth options after striking a counter-cyclical $US6.7 billion ($A9.9 billion) deal to buy Arcadium Lithium.
Rio Tinto said the purchase will also make it one of the leading lithium producers globally.
The transaction is priced at a 90 per cent premium to Arcadium’s closing price of $3.08 per share on Friday 4 October though that followed a big fall in the company’s share price.
Arcadium, which is chaired by Perth-based Peter Coleman, has assets around the world including the Mt Cattlin mine in WA but most of its assets are in Argentina.
It has recently flagged the closure of Mt Cattlin in response to market weakness.
Rio Tinto chief executive Jakob Stausholm said acquiring Arcadium was a significant step forward in Rio Tinto’s long-term strategy.
“Arcadium Lithium is an outstanding business today and we will bring our scale, development capabilities and financial strength to realise the full potential of its Tier 1 portfolio,” he said.
“This is a counter-cyclical expansion aligned with our disciplined capital allocation framework, increasing our exposure to a high-growth, attractive market at the right point in the cycle.”
Rio Tinto said it was confident in the long-term outlook for lithium, predicting a compound annual growth rate in lithium demand of more than 10 per cent through to 2040, leading to a supply deficit.
“With spot lithium prices down more than 80 per cent versus peak prices, this counter-cyclical acquisition comes at a time with substantial long-term market and portfolio upside, underpinned by an appealing market structure and established jurisdictions,” the company stated.
Promoting the deal to Arcadium shareholders, Mr Coleman said his company was “facing challenging market conditions with the outlook for lithium prices continuing to remain depressed”.
“While we remain very optimistic about the long-term outlook for lithium as the energy transition continues, we believe the all-cash premium offer made by Rio Tinto is a full and fair one for our shareholders,” he added.
“The immediate and substantial cash offer provides shareholders with certainty and liquidity, allowing shareholders to realize the full value of our investment without the ongoing risks associated with potential future market fluctuations.”
Arcadium was created in January 2024 through a merger of ASX company Allkem and US company Livent.
That, in turn, followed a merger of Galaxy Resources and Orocobre to create Allkem.
However, Arcadium’s share price has been in almost constant decline as the lithium market weakened.
That created an opening for Rio to offer cash to Arcadium’s shareholders.
Arcadium has 2,400 employees worldwide.
It’s current annual lithium production capacity is 75,000 tonnes lithium carbonate equivalent.
Its expansion plans would more than double capacity (up 130 per cent) by the end of 2028. This excludes Mt Cattlin.
Rio said it expects Arcadium’s projected growth capital expenditure to represent approximately 5 per cent of its group capital expenditure of up to $US10 billion across 2025 and 2026.
The purchase comes after Rio hit a number of roadblocks in attempts to build its own lithium business, with its proposed Jadar project in Serbia blocked after it attracted strong community opposition.
However Rio has been progressing development of the Rincon project in Argentina.
Today’s news comes two months after BHP committed to invest $US2.1 billion ($A3.2 billion) into a joint venture with Canada’s Lundin Mining to develop two copper projects near the border of Chile and Argentina.
The region’s biggest home-grown lithium producer is Chilean company Sociedad Química y Minera de Chile (or SQM), which has partnered with Wesfarmers on the $A2.5 billion Covalent Lithium joint venture in WA.